EX 12-11 Admitting new partners who buy an interest and contribute assets

The capital accounts of Jonathan Faber and Faheem Ahmad have balances of $150,000 and $110,000, respectively. Lauren Wells and Rachel Lee are to be admitted to the partnership. Wells buys one-fifth of Faber’s interest for $35,000 and one-fourth of Ahmad’s interest for $25,000. Lee contributes $70,000 cash to the partnership, for which she is to receive an ownership equity of $70,000.

a. Journalize the entries to record the admission of (1) Wells and (2) Lee.

b. What are the capital balances of each partner after the admission of the new partners?

Answer:

a. (1) Jonathan Faber, Capital (20% × $150,000)............  30,000 Faheem Ahmad, Capital (25% × $110,000)............  27,500 Lauren Wells, Capital........................................    57,500  (2) Cash.........................................................................  70,000 Rachel Lee, Capital............................................    70,000  
b. Jonathan Faber ($150,000 – $30,000)...........................  120,000 Faheem Ahmad ($110,000 – $27,500)...........................  82,500 Lauren Wells..................................................................  57,500 Rachel Lee......................................................................  70,000

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